Tax preparers could be doing more to help reduce the tax gap if they had encouragement from the IRS, according to the Treasury Inspector General for Tax Administration (TIGTA).
The tax gap - estimated at $345 billion - is the difference between the annual federal tax obligation and the amount of taxes paid on time and voluntarily. The audit was conducted to evaluate the IRS's work to partner with tax practitioners to reduce the tax gap, as more than half of all taxpayers pay someone else to prepare their returns. In fact, the IRS processed about 86 million returns completed by tax preparers, and the individual income tax comprises 71 percent of the tax gap, according to the audit report.
While the United States has the one of the highest rates of tax compliance in the world at 83.7 percent, each percentage point of noncompliance amounts to $342 billion in lost revenue annually, the report said.
The IRS has included two key objectives and several strategies to work with the tax preparer community in its Strategic Plan for Fiscal Years 2009-2013. "However, actions were not taken to ensure previously omitted key components were included in the existing IRS Strategic Plan", the report said. "Without these components, it is unclear how the IRS will effectively monitor its performance and adherence to the requirements for strategic plans." The report added that the Strategic Plan does not include specific ways to measure the IRS's efforts and that "without an effective process to monitor its performance, the IRS cannot ensure its programs are achieving their objectives and desired outcomes."
The Strategic Plan calls for strengthening partnerships with tax preparers by:
- Enabling partners to better serve their customers by providing faster issue resolution and tailored service.
- Treating partners as the "first line of compliance" by providing them with the tools and information to encourage taxpayer compliance and prevent mistakes.
The Strategic Plan also calls for ensuring that all tax preparers adhere to professional standards and follow the law by:
- Developing and implementing a coordinated preparer plan across the IRS and the preparer community.
- Administering a fair, diligent and effective system of sanctions and penalties for those who fail to follow the law.
- Leveraging research to identify fraudulent return preparers and other areas of abuse and noncompliance by return preparers.
The IRS agreed to include TIGTA's recommendations in its next strategic plan, scheduled to be issued in 2013.
The report also noted that the IRS Commissioner launched a review of tax return preparers last year, which produced eight recommendations. They include mandatory tax return preparer registration, competency examination requirements, and required continuing professional education. The report said that implementing the recommendations will be "an effective step in engaging the tax preparer community."